MANHATTAN BRIDGE CAPITAL, INC quarterly report, Q2 FY2013

Manhattan Bridge Capital, Inc. — Q2 2013 Form 10-Q

Business and period. The company makes short-term, secured real-estate loans to investors in the New York metropolitan area. This unaudited report covers the quarter and six months ended June 30, 2013; balance-sheet comparisons are with December 31, 2012.

Financial performance and position

MetricQ2 2013Q2 2012Six months 2013Six months 2012
Revenue$553,795$414,561$1,088,156$806,387
Operating income$247,044$157,893$505,296$338,472
Net income$157,931$80,080$331,070$195,046
Diluted EPS$0.04$0.02$0.08$0.05
Operating margin44.6%38.1%46.4%42.0%
Net margin28.5%19.3%30.4%24.2%
  • Revenue mix and growth: Q2 revenue rose 33.5% year over year; six-month revenue rose 35.0%. Interest income was $447,522 for Q2 and $892,301 for the half-year; origination fees were $106,273 and $195,855, respectively. Management attributed growth to increased lending.
  • Cash flow: First-half operating cash flow was $248,613, compared with $115,960 in 2012. Investing used $558,634, versus $1,651,359; financing provided $1,163,701, versus $1,480,000. Cash increased by $853,680 to $1,094,373.
  • Liquidity and assets: At June 30, cash was $1.09 million, working capital approximately $5.06 million, and total assets $15.76 million. Working capital was approximately $5.58 million at year-end 2012; management attributed the decline mainly to reclassifying loans as long-term.
  • Loans and credit exposure: Loans receivable totaled $14.18 million: $10.79 million short-term and $3.39 million long-term. The filing reports all loans as performing, with no impairment provision. Three loans were jointly funded with other parties; the company’s share was $1.635 million. Loans to related borrower groups totaled $3.195 million, or 22.5% of the portfolio. No single borrower entity exceeded 10%.
  • Debt: Current liabilities totaled $7.04 million, including a fully drawn $5.00 million Sterling bank line, $1.16 million of short-term loans, and $0.50 million of senior secured notes. The line bears interest at 2% above prime, subject to a 6% floor, and is guaranteed personally by the CEO. The notes bear 6.63% interest and were due in December 2013.

Changes, outlook, risks, and unusual items

  • Q2 interest and debt-service costs rose to $101,560 from $58,932; first-half costs rose to $204,206 from $100,074. Management attributed the increase mainly to greater use of the Sterling line to expand lending capacity.
  • The Sterling line was increased from $3.5 million to $5.0 million in January 2013. Its maturity was extended to July 1, 2014, effective after quarter-end.
  • First-half loan originations were $8.43 million and collections were $7.87 million. Loans generally carry stated rates of 12%–15%, potentially higher on an effective basis after fees. The company had $2,467,950 of additional construction-loan commitments available upon satisfaction of conditions.
  • Management said current cash should fund operations for the next 12 months, while working-capital needs are expected to increase as the company pursues growth. No specific earnings or revenue guidance was provided.
  • Some loans were extended beyond original maturities because borrowers faced difficulty obtaining traditional financing. Management says collateral is reevaluated before extensions; it cautions that future loans could default or become uncollectible. Subsequent to June 30, $800,000 of loans were repaid.
  • A shareholder derivative lawsuit concerning the CEO’s restricted-stock grant was settled and dismissed in April 2013. The $80,000 fee award was paid by the company’s insurance policy, not by the company. The filing also reports a $0.01-per-share dividend payment and $76,053 of treasury-stock purchases during the first half.
  • Management identified risks including the company’s limited operating history in its newer business, integration of potential acquisitions, quarterly result fluctuations, and growth challenges. Disclosure controls were deemed effective; no material change in internal control was reported.

Important facts for investors to verify

  • Repayment or refinancing of the $500,000 senior notes due December 2013 and continued availability and terms of the Sterling line.
  • Loan portfolio credit quality, collateral values, extensions, borrower-group concentration, and the status of the $2.47 million construction commitments.
  • Whether operating cash generation and liquidity can support portfolio growth and the expected increase in working-capital needs.
  • Share count: the filing reports 4,267,190 common shares outstanding as of July 31, 2013; the June 30 balance sheet reports 4,270,190 outstanding.